Tools & Supply International Ab
Umeå School of Business
Umeå University
901 87 Umeå
Hans Nilsson (070-573 74 30)
Tobias Svanström (090-786 55 26, 070-58 27 956)
Advanced auditing
Exam
Date: January 16, 2008
Time: 14.00 – 18.00
Room: Skrivsal 3, ÖP
The complete exam should be handed in to the invigilator.
Study aids: Dictionary: Foreign language - English - Foreign language!
Pocket calculator
The exam encompasses 60 points and contains 8 assignments.
Assignments should be answered directly on the exam or on separate sheets marked with question number and your code.
Finally, please answer questions in English.
• Fail • Pass • Pass with distinction
Good luck!
Part 1. Tools & Supply International AB (publ.)
Background
Tools & Supply International AB (TSIAB) is a parent company in an international group that manufactures and sales tools. TSIAB is listed on the Swedish Stock Exchange. The largest owner is an investment company that owns 23% of the shares.
The revenue of TSIAB in 2007 is about 5 000 msek (4 500 msek 2006) and the net profit is about 750 msekr (600 msek 2006). The total assets are 14 535 msek 2007 (13 752 msek 2006) and the Equity 4 350 msek 2007 (3 950 msek 2006). Assets consist mainly of inventory and accounts receivables.
The group has big international operations. Production plants are locating in Sweden, Denmark and Germany in separate companies. There are ten sales companies in different countries beside the manufacturing companies.
The group accounts are performed in according to IFRS. You are the Auditing Partner of this client since 2004.
Assignment 1 (8 p)
- Define materiality
Omissions or misstatements of items are material if they could, individually or collectively; influence the economic decisions of users taken on the basis of the financial statements. Materiality depends on the size and nature of the omission or misstatement judged in the surrounding circumstances. The size or nature of the item, or a combination of both, could be the determining factor.
- Describe how materiality is reflected in the auditors report
If there are material misstatements in the financial statements the auditor will issue a modified auditors report.
- Determine the Preliminary Judgment about Materiality for TSIAB and motivate your answer
5% - 15% of net income, 1 -3% of revenue, 2 – 5% of Equity, 1 – 2% of balance
Assignment 2 (10 p)
During the autumn of 2007 You are contacted by the CFO – Benny Bennysson – regarding improvements of the Annual report. The company plans to include information about its corporate governance in the report and the CFO wants to improve specially the part about internal control. The company has used the COSO-model as the framework for internal control and Benny wants to get an overview of what the COSO model actually includes.
a) Define internal control
Internal control is design and affected by those charged with governance (e.g. an entity’s board of directors), management, and other personnel that is designed to provide reasonable assurance about the achievement of the entity’s objectives in the following categories: (1) reliability of financial reporting, (2) effectiveness and efficiency of operations, and (3) compliance with applicable laws and regulations.
- Describe the five components of internal control according to the COSO – model (and the literature)
1. Control environment: The control environment sets the tone of the organization, influencing the control consciousness of its people. It is the foundation of all other components of internal control, providing discipline and structure.